COVID-19: LESSONS FROM HONG KONG - IRI...5 Germany 107,663 2,016 6 China 82,751 3,337 7 Iran 62,589 3,872 8 UK 55,949 6,171 9 Turkey 34,109 725 10 Switzerland 22,253 821 63 Hong Kong

Daniel Bone, Insights Director – Asia Pacific

Eliza Wong, Managing Director, Client Services – Hong Kong

April 08, 2020

COVID-19: LESSONS FROM HONG KONG

IRI Asia Pacific Industry Insights

© 2020 Information Resources Inc. (IRI). Confidential and Proprietary. 2

Hong Kong is further ahead than most other regions along the pantry stockpiling curve due to its geographical proximity to

the COVID-19 outbreak in Wuhan. Also important is an ingrained mentality among citizens to prepare for the worst.

Hong Kong is therefore a compelling contextual case study in terms of how people respond to the unique dynamism of the

global COVID-19 pandemic – both in general, and from an FMCG industry perspective

POINT OF VIEW

Source: IRI analysis

Hong Kong is a lesson to the world in virus mitigation and consumer response

A unique confluence of political,

social and economic tensions

have combined to be a highly

influential backdrop in how

COVID-19 related events in Hong

Kong unfolded. As such, any

implied cross-country learnings

should be used with caution

The Hong Kong experience

suggests FMCG stakeholders

should plan for the possibility of

multiple waves of pantry

stockpiling, and expect that the

initial sales spike from ‘wave 1’

to last around 6 weeks for food

and 4-5 weeks for non-food

Given the possibility for multiple

waves of infection to occur, we

would expect infection

containment measures (and the

related lifestyle implications) to

only be relaxed very cautiously

and to include ongoing close

monitoring and surveillance

The duration and velocity of the

spike in FMCG sales from a

second or third wave of infections

will likely prove less significant

for non-food items. Across both

food and non-food, the sought

after FMCG items will largely

remain consistent


Hong Kong was a territory in crisis before the COVID-19 pandemic…

Ongoing civil unrest Declining economy & retail sales Ingrained coronavirus angst

- Fell into recession for first time in a decade

in Q3’19 amid falling private consumption

- Economy shrank 3.0% in Q3’19, and by

-1.2% in the 2019 calendar year

- Retail sales fell >-30% in Jan & Feb (YOY),

with a decline of 30-50% expected in H1

- The chastening experience of being an

epicentre of the SARS outbreak 17 years

ago is still etched in the psyche of citizens

- COVID-19 outbreak will likely extend the

pre-existing recessionary cycle (and the

cautious ‘recessionary mindset’) further

- Large-scale, prolonged demonstrations

(in pursuit of democratic and police reforms)

has disrupted retail and other consumer-

related sectors (including tourism)

- Lack faith in government to handle crisis,

further fuelling protest tensions

A confluence of political, economic and social challenges equated to a ‘perfect storm’ of discontent

Source: IRI analysis; statistics.gov.hk; censtatd.gov.hk; reuters.com; wsj.com


…which meant that stockpiling was already boosting sales in 2019

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

All retail outlets Supermarkets

YOY retail sales value growth by type of retail outlet

Throughout 2019, Hong Kong’s supermarket retail sales

proved to be far more resilient than retail overall

Source: IRI analysis; statistics.gov.hk; censtatd.gov.hk; scmp.com

Supermarkets being generally located in

high density neighbourhood areas has

protected sales vs. mall based outlets


Hong Kong was one of the first places* to report COVID-19 infections

Feb 03

Jan 23

Jan 13

And one of the first nations to experience anxiety-

induced stockpiling of toilet paper…

…which is credited for propelling rumours of toilet paper

shortages (and thus further stockpiling) in other nations

Source: IRI analysis; nytimes.com; time.com; edition.cnn.com; abcnewsgo.com; *outside of mainland China


But the city’s COVID-19 infection rate is comparatively low

Global cases:

1,429,437Countries impacted:

184

Hong Kong cases:

935Hong Kong deaths:

4

Country Infections Deaths

1 United States 398,785 12,893

2 Spain 141,942 14,045

3 Italy 135,586 17,127

4 France 110,070 10,343

5 Germany 107,663 2,016

6 China 82,751 3,337

7 Iran 62,589 3,872

8 UK 55,949 6,171

9 Turkey 34,109 725

10 Switzerland 22,253 821

63 Hong Kong 935 4

Moved from the ‘China period’ to the ‘pandemic period’

Source: IRI analysis; Johns Hopkins University; Data recorded at 08/04/2020,11:33am; NB: Hong Kong data is included in China numbers

Global deaths:

82,074Global recoveries:

300,767


HK’s low rate is even more apparent when factoring in population…

3,036

2,571 2,243

1,915 1,686

1,285 1,205

474 241 231 253 202 125 57 34

# COVID-19 cases per million people in select countries, April 08

Hong Kong stands out alongside other Asia Pacific

territories as having relatively low rates of

infection, despite their geographic proximity to

mainland China and large number of travellers

Source: IRI analysis; worldometers.info; Johns Hopkins University; Data recorded at 08/04/2020,11:33am


…and with the city having been the epicentre of SARS in 2003

Hong Kong accounted for

38.6%of the 774 global SARS

deaths

Led to record high in

unemployment

No other city on earth

had as many cases

Prompted a local

property market crash

A population with an

ingrained instinct for

self-preservation

A population with

prior experience with

a health emergency

Source: IRI analysis; time.com; scmp.com; image sourced from hongkongfp.com


The legacy of the SARS trauma aided initial COVID-19 containment

- Medical community put on alert as early as 31 Dec.

- Proactively implemented travel restrictions on passengers

coming from the mainland

- Cancellation of Chinese New Year activities

- Closure of schools, public facilities, and early implementation

of home-office arrangements

- Further implementation of border closures, with medical

workers’ striking in late Jan/early Feb to make it happen

- Prison sentences for anyone breaching quarantine rules

- Residents routinely taking precautions (e.g. wearing face

masks; avoiding crowded places, strict personal hygiene)

- Maintaining faith in the health system, and related public

health measures, in spite of wavering trust in government

OF

FIC

IAL

PU

BLIC

The public and institutional response to COVID-19 was mostly aggressive from the outset in Jan/Feb

Source: IRI analysis; time.com; scmp.com; fortune.com; globalhealthnewswire.com; theguardian.com; nytimes.com


Strong public vigilance was also propelled by government distrust…

Trust

Distrust

42%

40%

Feb.

2016

Trust

Distrust

42%

40%

Feb.

2017

Trust

Distrust

47%

36%

Feb.

2018

Trust

Distrust

34%

47%

Feb.

2019

Trust

Distrust

14%

76%

Feb.

2020

Source: IRI analysis; hkupop.hku.hk

Amid the COVID-19 outbreak, public trust in the HK government reached an all-time lowExpressed trust in the government fell -28pp; distrust increased by 36pp

Reflects a growing viewpoint of an unrepresentative and unresponsive government


…by further spurring Hong Kongers to prepare for the worst

Agree

Neutral

Disagree

24%

18%

56%

The governments’

handling of the crisis

Agree

Neutral

Disagree

72%

17%

6%

The community

response

If Hong Kong avoids a large-scale epidemic it

will be down to the…

Mistrust and disaffection towards

the government made it easy for

misinformation to spread

Hong Kong’s early stockpiling

was influenced by low trust in the

government to handle the crisis

And it further cultivated a self-

preservation mentality: ordinary

citizens acting to protect

themselves and their families

Source: IRI analysis; Chinese University of Hong Kong Survey/scmp.com


Preparing for the worst influenced early pantry stockpiling…

Total Hong Kong Retail Total HK Supermarket Retail

Jan

2020

Feb

2020

10%HK$

12%HK$

-22%HK$

-44%HK$

…driving double-digit growth in supermarket sales, an anomaly in a largely bleak retail landscape

Source: IRI analysis; statistics.gov.hk; censtatd.gov.hk; edition.cnn.com


…which was clearly evident in IRI measured triple-digit growth

1) Household Cleaning

2) Tissues

3) Dishwashing

4) Soap & Deodorant

5) Toilet Tissue

6) Paper Towels

7) Household Wraps And Bags

8) Household Care

9) Laundry

10) Feminine Care

1) Pork

2) Pasta

3) Canned Vegetable

4) Rice

5) Canned Meal

6) Frozen Ready Meal

7) Frozen Meat

8) Baking Aids

9) Froz. Bakery & Desserts

10) Canned Meat

Top 20 fastest growing food fixtures Top 10 fastest growing non-food fixtures

11) Chinese Deli

12) Frozen Seafood

13) Canned Seafood

14) Frozen Chinese Meals

15) Oil

16) Meat Counter

17) Prepared Meat

18) Butter & Margarine

19) Soup

20) Bakery Bread

>100% 50-100%

Source: IRI analysis; IRI Hong Kong MarketEdge Grocery, 4wks to 27/2/2020; *ipsos.com

Over half of

consumers

spending more

51% report

spending more

on household

cleaners offline,

and 27% spent

more online*


…and like global markets that followed, toilet paper was a coveted item

4 wks

to 27/02

4 wks

to 19/03

4 wks

to 02/04

132%HK$

-22%HK$

30%HK$

Source: IRI analysis; IRI Hong Kong MarketEdge Grocery, timeframes as referenced

Toilet paper

Rumour amplified online that

China was going to stop

manufacturing toilet paper

Toilet rolls were unavailable in

supermarkets as social media

posts showed empty shelves


HK’s toilet paper sales trajectory reflect many top growth categories

Top 20 food growth categories Top 10 non food growth categories

6 wks from peak stockpiling to normalised sales

4 wks from peak stockpiling to normalised sales

HK$ sales of the top 20 fastest growing food categories, and top 10 fastest non food categories

Source: IRI analysis; IRI Hong Kong MarketEdge Grocery, week ending 12/12/19 to 02/04/20; NB: specific sales details are not given due to commercial sensitivity of the data

Why the 2nd surge?


Because the effectiveness of HK’s coronavirus containment wavered…

…and global media was left trying to ascertain the fallibility of what was a beacon in COVID-19 containment

Source: IRI analysis; edition.cnn.com; theguardian.com; time.com; businessinsider.com


…as the city recorded a ‘2nd wave’ acceleration in cases from mid-March

0

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Until Mar. 17, the highest

number of new cases

reported in one day in

Hong Kong was 10,

which had happened

only on two instances

In the first 54 days since

Jan. 23., when Hong

Kong started to report

confirmed cases, there

were 36 days of three

new cases or fewer 2nd waveFrom mid-March

onwards, the

number of new

cases has crept

upwards

Source: IRI analysis; Johns Hopkins University; scmp.com


The acceleration of COVID-19 infections stemmed from the following…

Despite largely diligent

containment measures, Hong

Kong had not been in forced

lockdown mode. Shops, bars,

and restaurants remained

open. Glimpses of normality

emerged as the atmosphere of

fear eased, people retuned to

offices and some public

spaces re-opened

Staffing and logistical

improvements evident after the

CNY holiday helped to improve

OSA* of key stockpiled items

to near-normal (toilet paper,

rice, sanitiser, and face

masks). Fear of foreign

influence on supply chain

subsides against backdrop of

few virus related deaths

Complacency & lack of

forced lockdown/distancing

Anxiety-induced

stockpiling subsides

Second wave of mostly

imported infections

March 17 marks the beginning

of a second wave of COVID-19

infections among returning

citizens from territories

struggling to mitigate the

spread; 36 of the 48 COVID-19

cases reported on March 20

had overseas travel records

suggesting a reimporting of

the virus

And a third wave

to come?

In the w/c Apr. 05,

warning emerged

about a third wave

from mainland

China due to a new

wave of cases

coming from the

China mainland

(and then flowing

into Hong Kong)

321

Source: IRI analysis; scmp.com; time.com; wired.com; amnesty.org; lowyinstitute.org; *On Shelf Availability


The specifics of recent cases & measures have garnered attention…

A 40-day-old baby boy became

the youngest confirmed

coronavirus case in Hong Kong

A Hong Kong based pet cat

becomes the 2nd cat globally

to test positive for

coronavirus, and the 2nd

animal (after a dog) to

become infected in the city

Mar.

31

Fears of large-scale community

outbreak as number of local infections

increases from 57 to 103 in one week

Apr.

02

Extended to Apr. 23 a recent ban

on public gatherings of 4+ people

and the closure of venues such as

gyms, bars and karaoke parlors.

Restaurants are required to run at

half capacity and space out tables

Apr.

08

Source: IRI analysis; asiatimes.com; thestandard.com.hk; timeout.com

Apr.

02


…as a majority share of HK citizens feel some impact on their daily lives

12.3%

21.5%

47.3%

18.2%

Very big negative impact

Big negative impact

Slightly negative impact

No negative impact

Finances

10.1%

21.9%

52.8%

14.9%

Emotions

22.0%

29.6%

36.8%

11.5%

Daily life

Source: IRI analysis; Chinese University of Hong Kong Survey/scmp.com


And now rice is leading household essential that’s top-of-mind…

4 wks

to 27/02

4 wks

to 19/03

4 wks

to 02/04

115%HK$

-16%HK$

80%HK$

Source: IRI analysis; IRI Hong Kong MarketEdge Grocery, timeframes as referenced; scmp.com; thestandard.com.hk

Rice

Stocking up on rice amid worries

that Vietnamese and Thai

authorities might ban rice exports

to ensure domestic food security

Rice shortages (among other) are

also a concern amid tightening

controls over cross-border

truckers to contain COVID-19

Rice sales are again up >200% in

the latest week


…and exists as more extreme example of ‘second wave stockpiling’

Pork Pasta Rice Household Cleaning Tissues Toilet Tissue

HK$ sales select top supermarket growth categories during the COVID-19 outbreak

Source: IRI analysis; IRI Hong Kong MarketEdge Grocery, week ending 12/12/19 to 02/04/20; NB: specific sales details are not given due to commercial sensitivity of the data


Many sought after essentials returned to triple-digit growth in early Apr.

1) Dishwashing

2) Paper Towels

3) Household Cleaning

4) Tissues

5) Toilet Tissue

6) Household Care

7) Household Wraps And Bags

8) Soap & Deodorant

9) Polishes Air Fresheners

10) Laundry

1) Pork

2) Rice

3) Canned Seafood

4) Canned Meal

5) Total Frozen Meat

6) Pasta

7) Baking Aids

8) Canned Meat

9) Frozen Ready Meal

10) Beer

Top 20 fastest growing food fixtures Top 10 fastest growing non-food fixtures

11) Canned Vegetable

12) Ice Cream

13) Frozen Seafood

14) Butter & Margarine

15) Oil

16) Frozen Chinese Meals

17) Cooked Meat

18) Boxed Eggs

19) Meat Counter

20) Cheese

>100% 50-100%

Source: IRI analysis; IRI Hong Kong MarketEdge Grocery, 1wk to 02/04/2020

10-50%


We have concurrently observed a return of barren looking stores

Source: IRI analysis; IRI store visits

45% of Hong Kong respondents told Ipsos that

they had increased their fresh food spend offline

(vs. 9% online)

And with stronger social distancing measures

restricting out-of-home occasions, supermarket

sales are likely prosper further in April


…as a 2nd wave of stockpiling reflects hunkering down for the long-term

Most Hong Kongers

do not think the

COVID-19 crisis

will be ending

anytime soon, with

just 14% expecting

the pandemic to

end by June

Will end in

Q2 2020

14%

Will end in

Q3 2020

30%

Will end in

2021

10%

Source: IRI analysis; ipsos.com; select answers only in a survey conducted 16-20 March

We would therefore

expect to see

anxiety-influenced

supermarket

stockpiling to

continue, albeit to a

lesser extent than

in wave 1


And with more time spent at home, alternative commerce models can thrive

DayDayCook is a multimedia

cooking platform that has seen

users grow by more than half

from Jan-Mar. – the most

significant user gains since the

2012 launch. While young Hong

Kongers have grown up

accustomed to eating out

regularly, COVID-19 could prove

to be a key catalyst in the revival

of cooking at home

Source: IRI analysis; daydaycook.com; nypost.com; scmp.com


Hong Kong is further ahead than most other regions along the pantry stockpiling curve due to its geographical proximity to

the COVID-19 outbreak in Wuhan. Also important is an ingrained mentality among citizens to prepare for the worst.

Hong Kong is therefore a compelling contextual case study in terms of how people respond to the unique dynamism of the

global COVID-19 pandemic – both in general, and from an FMCG industry perspective

POINT OF VIEW

Source: IRI analysis

Hong Kong is a lesson to the world in virus mitigation and consumer response

A unique confluence of political,

social and economic tensions

have combined to be a highly

influential backdrop in how

COVID-19 related events in Hong

Kong unfolded. As such, any

implied cross-country learnings

should be used with caution

The Hong Kong experience

suggests FMCG stakeholders

should plan for the possibility of

multiple waves of pantry

stockpiling, and expect that the

initial sales spike from ‘wave 1’

to last around 6 weeks for food

and 4-5 weeks for non-food

Given the possibility for multiple

waves of infection to occur, we

would expect infection

containment measures (and the

related lifestyle implications) to

only be relaxed very cautiously

and to include ongoing close

monitoring and surveillance

The duration and velocity of the

spike in FMCG sales from a

second or third wave of infections

will likely prove less significant

for non-food items. Across both

food and non-food, the sought

after FMCG items will largely

remain consistent

© 2020 Information Resources Inc. (IRI). Confidential and Proprietary. 28© 2020 Information Resources Inc. (IRI).

Confidential and Proprietary. 28

CONTACT US FOR MORE

INFORMATION

IRI Hong Kong

4/F Reception, Lee Garden Three, 1

Sunning Road, Causeway Bay, Hong

Kong

T. +852 3769 6130

Email: [email protected]

Documents

COVID-19: LESSONS FROM HONG KONG - IRI...5 Germany 107,663 2,016 6 China 82,751 3,337 7 Iran 62,589 3,872 8 UK 55,949 6,171 9 Turkey 34,109 725 10 Switzerland 22,253 821 63 Hong Kong